A recent lawsuit filed in federal court highlights growing legal risks for cryptocurrency platforms stemming from their handling of digital assets during volatile market events. Coinbase Global Inc., one of the largest U.S.-based crypto exchanges, is now facing a proposed class action brought by users who claim the exchange mishandled Wrapped Luna (WLUNA) transactions and issued inaccurate tax documents in the wake of the 2022 Terraform Labs collapse.
Twelve plaintiffs, all retail investors, filed suit on May 28, 2024, alleging that Coinbase made misleading statements and failed to properly manage their WLUNA holdings following the dramatic failure of the Terraform ecosystem in May 2022. WLUNA was a token designed to mirror the value of Terraform’s native LUNA token but operate on the Ethereum blockchain.
During the market upheaval caused by the Terraform collapse, Coinbase suspended trading of WLUNA. The plaintiffs claim the exchange gave the impression this would be a temporary measure, when in fact it never resumed trading. According to the complaint, Coinbase’s actions not only misled investors but also prevented them from converting WLUNA into new LUNA tokens that were issued as part of Terraform’s recovery efforts.
The plaintiffs further allege that Coinbase issued inaccurate tax and account documentation that did not align with blockchain records. One plaintiff, for example, reportedly received a 1099 form stating she had acquired $76 million in WLUNA—an amount she claims is wildly inconsistent with actual transactions recorded on the blockchain.
Key Legal Allegations
The lawsuit accuses Coinbase of:
- Securities law violations, for allegedly issuing false or misleading statements about WLUNA;
- Breach of contract and breach of the implied covenant of good faith and fair dealing;
- Fraud, based on the exchange’s handling of the token suspension and investor communications;
- Conversion, for allegedly blocking users from accessing or moving their WLUNA tokens.
The plaintiffs argue that Coinbase’s actions ultimately benefited the exchange at the expense of its users by minimizing Coinbase’s own market exposure while limiting investors’ ability to recover losses through independent trading or conversion.